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Dairy cows fill the stalls of a rotary milking station
PRODUCTIVE COWS: The nation’s dairy herd dropped 8,000 head from July to August, but milk production is still slightly higher.

Lots happening in D.C. for dairy, but tariff troubles persist

Dairy Notes: USDA has increased its milk price forecast for 2019.

By Gary Latta

Editor’s Note: This is the first in what will be a new bimonthly column on the dairy market and its impact on farmers in the Northeast and Mid-Atlantic. Gary Latta is the director of industry relations with Northeast Dairy Foods Association in North Syracuse, N.Y.

Quite a few things are happening in Washington, D.C., right now that will affect Northeast and Mid-Atlantic dairy farmers.

USDA has announced that up to $12 billion will be made available to cover what is an estimated $11 billion hit from tariffs on U.S. agricultural products. The Trump administration has apparently reached an agreement with European Union officials to avoid an additional trade war there, eliminating subsidies, barriers, and tariffs on energy and agricultural goods.

An amendment in the House that would improve the H-2A program for dairy is good news. The amendment would allow employers to use the H-2A program to hire foreign dairy workers year-round. The current H-2A visa program only allows temporary and seasonal labor. GOP House leadership has stated that it will address the amendment this fall.

There is also an amendment that would provide $7 million in grants for state departments of agriculture, academia, Cooperative Extension and nonprofit groups for programs that promote dairy product innovation, marketing and process improvements.

Milk production numbers
The USDA’s Milk Production Report for July, the latest report available, shows milk production slowing with an increase in production of only 0.4% for both the top 23 states and the U.S.

Production totaled 17.3 billion pounds, up slightly from June’s 17.2 billion pounds for the top 23 states. Cow numbers in those states grew 1,000 head over July of 2017 but dropped 8,000 head from June 2018.

Despite the smaller herd size, overall milk production is still up, primarily from ongoing increases in output per cow. Productivity per cow in the top 23 states was an average 1,980 pounds, 8 pounds over July 2017 and the highest July figure observed since the series was started. For perspective, the U.S. has 9.4 million head of milk cows and 8.74 million of these are in the top 23 producing states.

The Northeast has five states in the top 23: New York, Ohio, Pennsylvania, Vermont and possibly Virginia. Except for New York, all showed a decrease in July milk production. In fact, 11 of the top 23 states showed a production drop. Only 10 states showed production increases while two states were flat.

Production per cow was up in New York, Ohio and Pennsylvania but down in Vermont and Virginia. Persistent storms, heat and humidity likely took their toll on animal comfort and decreased output.

Input costs rising
In Farm Credit East’s midyear outlook, input costs are below their 2014 peak but are starting to inch up, and the index is now at its highest point in four years. USDA reports that dairy feed prices are steady to slightly down.

While corn, soybeans and alfalfa hay prices are down, they are still higher than last year. Cull cow prices are steady, and replacement heifer prices are lower.

Recent USDA Eastern regional reports indicate an increase in Class I sales as processors draw milk to fill the school startup pipelines. Class III manufacturers report steady supplies arriving at their plants, but sense the market is a bit tighter due to the draw toward Class I. Because of the fluid draw, cream availability is loosening up but steady as summer’s ice cream business remains brisk. In fact, cream multiples were highest in the East as USDA noted in their latest weekly Dairy Market News report. The same report revealed that bulk butter pricing in the East was 4 to 7 cents above market prices as foodservice and school demand picks up.

Pizza cheese suppliers are preparing for a heavier sales volume as schools start and the football season approaches. Dry products are steady as buyers wait to see what direction the market will go before committing to additional purchases. Dry whey prices are firm both in the Northeast and nationally due to strong demand and tighter milk supplies at cheese plants.

Slightly higher prices

The August World Agriculture and Supply Estimates (WASDE) from USDA highlights dairy production, supply, imports, exports and price forecasts for the remainder of 2018 and 2019. In its report, USDA forecasts no change to its milk production forecast for 2018 but raised its production forecast for 2019 based on both a small increase in the number of cows and the trend toward more output per cow.

The July estimated all-milk price was $15.95 to $16.25 per cwt but increased for August to $16.10 to $16.30 per cwt.

USDA raised its estimates on product prices for cheese, butter, nonfat dry milk and dry whey. Class III was raised from a July estimate of $14.30-$14.60 to an August estimate of $14.50 to $14.70. The Class IV was raised from $13.65-$14.05 in July to an August estimate of $13.95 to $14.25.

USDA estimates similar consumer demand strength will be carried into 2019 and they have raised their previous estimate on all product prices except for butter, which they left unchanged. The August WASDE puts 2019 prices for Class III at $14.95 to $15.95, Class IV at $13.75 to $14.85 and the all-milk at $16.45 to $17.45.

Tariff troubles
The drop in U.S. dairy exports due to retaliatory tariffs from three important trading partners — Mexico, China and Canada —have taken a toll on market prices. Tariffs from some of our largest trading partners were imposed on the U.S. in retaliation for imports on foreign aluminum, steel and other goods.

Until a few months ago, the U.S. was on its way to another record year of dairy exports. By midsummer, Mexico had imposed a retaliatory tariff on U.S. cheese of 25%, but nothing yet on nonfat dry milk. China increased its retaliatory tariffs twice up to a range between 27% and 37%, depending on the product.

Insiders estimate that a 25% tariff inflates the price of a pound of cheese by about 45 cents, butter 60 cents, nonfat dry milk 20 cents and dry whey 10 cents. Both China and Mexico were favorable destinations for U.S.-produced cheese. Canada has also placed 25% retaliatory tariffs on many U.S. products, such as yogurt and pizza cheese.

According to the U.S. Dairy Export Council, the top five dairy export markets in 2017 were Mexico, $1.3 billion; Southeast Asia, $690 million; Canada, $636 million; China, $577 million; and Japan, $291 million. Rounding out the top 10 are South America, South Korea, Oceana, the Middle East and North Africa, and the Caribbean.

The export council and other dairy leaders are rumored to be developing more exports for countries and regions such as Japan, the Middle East, Southeast Asia and others. If dairy exports to these destinations increase, the U.S. could make up for a large percentage of sales lost from tariffs.

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